What is Mortgage Insurance?
When you purchase a home, if you put down less than 20 percent, you’re generally required to pay mortgage insurance. Mortgage insurance is made to protect the lender in case the borrower defaults on the loan. Say, if you’re only putting 5% down on your mortgage that basically means that the bank you’re borrowing the money from is taking on 95% of the risk of the loan, making it to risky on their part. Requiring the borrower to take out their insurance policy protects the bank. The monthly mortgage insurance premium is included into the monthly mortgage bill and varies depending on the type and size of the loan, the down payment and the credit of the borrower.
In general, there are two types of mortgage insurance: mortgage insurance bought from the government, designed for those with FHA or VA loans or mortgage insurance for conventional loans which is bought from the private sector (this is called private mortgage insurance or PMI), Basically, the type of mortgage insurance required will depend on the type of mortgage loan you get.
Drop mortgage insurance today with Drop Mortgage’s lender paid mortgage insurance. Call or email us to find out how.
Who is required to have Mortgage Insurance?
Typically on a conventional loan, if your down payment is less than 20 percent of the value of the home, lenders will require you to have mortgage insurance. Usually, you pay those mortgage insurance premiums until your loan-to-value ratio (LTV) this is the amount of money you borrowed divided by the value of the property you bought, hits 80 percent. For example, let’s say you bought a $100,000 home and put down 10 percent, or $10,000, and got a $90,000 loan to pay the rest. Your LTV in this case would be $90,000 divided by $100,000, or 90 percent. The longer you pay down your mortgage, the lower your LTV will become. On government loans, mortgage insurance is normally required regardless of the LTV.
What Is Lender Paid Mortgage Insurance?
Lender paid mortgage insurance is when your mortgage lender pays your mortgage insurance premium upfront in a lump sum and passes on the cost to you in the form of a higher interest rate. With LPMI, the interest rate often is one-quarter to half a percentage point higher, but it sometimes can be outside of that range, either lower or higher.
There are several ways to drop mortgage insurance. Either by reducing it or eliminating it all together. Call us today to find out how!